VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #1309/01 1901549
ZNR UUUUU ZZH
R 091549Z JUL 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 3157
INFO RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS CAIRO 001309 
 
SIPDIS 
 
STATE FOR NEA/ELA 
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EFIN PGOV EG
SUBJECT:  EGYPT LAUNCHES SINGLE REGULATOR FOR NON-BANKING FINANCIAL 
SECTOR 
 
¶1. (U) Key Points 
 
-- A new agency consolidating all non-bank financial supervisory 
duties started operation July 1. 
 
-- The new Egyptian Financial Supervisory Authority merges three 
pre-existing regulatory agencies overseeing the mortgage, insurance 
and capital markets. 
 
-- The merger, which USAID helped design, is intended to increase 
the transparency and efficiency of the financial sector and 
diversify and expand access to financial services. 
 
¶2. (U) The newly established Egyptian Financial Supervisory 
Authority (EFSA) began operating July 1 and replaces the Capital 
Market Authority, the Egyptian Insurance Supervisory Authority, and 
the Mortgage Finance Authority. The EFSA, which the GOE has also at 
times called the General Authority of Financial Supervision (GAFS), 
is part of Egypt's ongoing economic reform program. The merger is 
expected to help consolidate and streamline regulation of all 
non-bank financial industries, with the intention of improving both 
supervision and enforcement and ultimately diversifying and 
modernizing Egypt's financial sector. 
 
¶3. (U) In a statement, Minister of Investment Mahmoud Mohieldin said 
that the establishment of the new regulator is part of the 
comprehensive reform program that began in 2004 and has included tax 
and energy subsidy reductions and the privatization of several 
previously state-owned enterprises. EFSA, according to the Ministry 
of Investment, is intended to boost investment in Egypt through more 
efficient supervision of non-bank financial markets, including 
insurance, capital markets, mortgage finance, leasing, and improved 
investor rights protections. The Ministry also stated that its first 
priority will be to create a unified corporate governance code to 
replace the different regulations formerly used by the three 
separate sub-regulators. 
 
¶4. (U) The new authority will be headed by Dr. Ziad Bahaa El-Din, a 
lawyer and widely respected former head of the General Authority of 
Free Zones and Investment, Egypt's investment promotion agency. 
Although the new regulatory authority began operations last week, 
the merger of the supervisory authorities will take place over a 
transitional period of several years, Mohieldin told the local 
press. The overall merger will take place in still imprecisely 
defined phases, beginning with the merger of basic supervisory 
activities and the creation of a "One Stop Shop" for servicing 
public inquiries and basic requests. The legal structure of the 
agency is still being formulated and is not expected to be finalized 
until the end of the transitional period. Two deputies and six board 
members will serve under the chairman, all appointed by the Prime 
Minister. 
 
¶5. (U) EFSA is still working out a number of basic logistical 
issues. For instance, it has developed a website for the new agency, 
but is still creating an integrated information technology platform 
and devising an organizational structure, both with USAID 
assistance. One of its most important current priorities is 
developing job descriptions and functions for new employees. Bahaa 
El-Din is in the process of finding appointments for a handful of 
top leadership positions within EFSA, and in six months is expected 
to begin hiring other employees. Employees at the three formerly 
separate regulatory agencies are still housed at their home 
agencies, but are expected to move to a new EFSA headquarters, still 
under construction, in three to four years. 
 
¶6. (U) A number of experts and financial analysts have voiced 
optimism about the merger and consider it a step toward greater 
market efficiency. Amr Wahib, investment manager at Kaizen Financial 
Consulting, said that the change would enhance market transparency 
and have a positive effect on investment in general. However, some 
experts expressed concern about the difficulty of merging previously 
independent entities. Although the three previously separate 
financial regulatory agencies all operated under the Ministry of 
Investment, they were administered separately and neither cooperated 
nor communicated extensively with one another. Additionally, a 
recent presidential decree has given EFSA substantial independence. 
The agency will have a salary structure independent of the GOE and 
will report directly to the Minister of Investment rather than to 
the Ministry itself. 
 
¶7. (U) Comment: Since one of the major obstacles to investment in 
Egypt is the country's underdeveloped financial sector, the merger 
of the three regulatory agencies is potentially another step in the 
right direction. It should facilitate Egypt's integration with the 
global financial system, boosting foreign capital inflows and 
stimulating the economy in the long-run. Although Egyptian banks' 
cautiousness may have helped insulate the country's financial sector 
from the global economic crisis, it has also stifled investment, 
particularly in small- to medium-sized firms, and hampered the 
 
development of other financial instruments, such as mortgages. The 
new authority is expected to provide a more efficient framework for 
developing a wider variety of credit options for Egyptian firms, 
mortgages for potential homeowners, and other financial instruments. 
 
 
¶8. (U) Comment Cont'd: While the USG has supported each of the three 
stand alone regulators over the past several years and they have 
improved significantly, each still has much room to improve. 
Clearer regulations, greater transparency, and stronger enforcement 
of existing laws will increase the credibility of the regulatory 
environment and gradually promote private initiative and financial 
innovation. Such a regulatory overhaul is a complicated process, so 
financial development and diversification will take place gradually. 
Likewise, there is no indication yet as to whether the new authority 
will seek to liberalize financial regulations rather than simply 
unify supervision and enforcement. If the GOE engages in another 
round of financial liberalization, this time with a focus on the 
non-bank financial sector, the development of EFSA puts it in a 
better position to do so simultaneously and uniformly, and hopefully 
more effectively. End Comment. 
 
SCOBEY